Spend Matters Procurement Predictions: Five Scenarios For the Next Decade (Part 3)

Click here for the first and second posts in this series.

We see our second procurement scenario (out of five) already unfolding, given what's happening in the EU and broader global landscape these days. We've titled this one Beyond Process: Politics, Regulation, Philosophy and Economics Define Procurement's Focus. Consider the current situation with European uncertainty and market volatility. We continue to face jobless recoveries on a global basis with the long-term unemployed not finding work and governmental and personal debts continuing to mount. The only good sign in unemployment numbers appears temporary and seasonal hiring. Austerity programs are hindering even the Queen's lifestyle in the UK, we're told. Within this context, procurement is being asked not only to further revisit cost savings and options, but manage in an environment where working capital is more dear (even when it's not, companies treat it as such today -- a critical distinction given the appearance of often strong balance sheets, but the reality of much greater uncertainty and vault-like controls on spending).

Aside from European uncertainty and broader market volatility, regulations and supply chain traceability increasingly rule the day. Consider just the cost and effort involved in keeping track of supplier practices for Dodd-Frank (conflict minerals), EU RoHS/WEEE, EU RoHS version 2, China RoHS, California RoHS, EU REACH and the Toxic Substances Control Act -- just to name a small subset of the regulatory drivers impacting procurement . Moreover, owing to both government and industry regulation and oversight, we must maintain traceability often on a multi-tier level. And globalization is only making things more challenging along these lines. Indeed, for parts, chemicals and ingredients, procurement and supply chain organizations are now facing a double whammy in the proliferation of ingredients, substances, components and regulations (regional, country, etc.) they must manage within their supply chains and global sources of supply/geographies in the elements that make up individual product supply chains. Local industry regulation, labor expectations, and codes of conduct are further adding to the effort to manage broader compliance.

If this feels all encompassing, perhaps it should. After all, in this scenario, how much will be able to focus on cost reduction and proactive risk reduction going forward when we're up to our shoulders in reacting to economic meltdowns and environmental/CSR related supply chain compliance? And the challenges of this emerging environment go even further! For example, consider how political and superpower conflict can impact the private sector's bottom line. From the behind-the-scenes battle for raw materials (e.g., rare earth metals in China) to mineral rights/mining in South America and Africa, we're increasingly seeing East and West flex their respective muscles to further control the global supply of base materials. Perhaps this is why, for example, the price of iron ore and coking coal (the two major inputs into steel) is largely set in China, not globally or in the US, based on Chinese and emerging market demand, which dwarfs the US in growth terms. Moreover, it's also why global rare earth prices are set in China as well.

Blood, sweat and tears also rule this emerging world -- and will likely rule this procurement scenario. Consider the increasing chance of armed conflict with Iran or the continued appearance of terrorism on the world stage (even protesters shutting down a port, as the "Occupy Wall Street" movement did for a period of time, let alone events with more anti-society and destructive intentions). Moreover, as the Democratic/Islamist movements in the Middle East push to their logical ends -- along with continued bloodshed in places like Syria -- the North African and Middle Eastern supply chain could face potential disruptions as well.

I believe that it's possible to logically argue that politics, regulation, philosophy and economics are defining procurement's focus. From reacting to commodity market swings (resulting from China-led -- i.e., Chinese government-led -- demand) to providing greater liquidity to suppliers and supply chain partners that are finding it hard to tap banks lines of credit in Europe, procurement is already prioritizing initiatives which are not of their own doing -- or that of shareholders. Rather, this scenario presents procurement in a constant state of triage, forcefully defending the main castle gates between the organization and the outside world as economics, government and foreign affairs batter up against corporate defenses -- and the occasional offensive push when strategy allows.

In this scenario, I believe that supply chain intelligence, market insight and the ability to accurately plan and forecast take on multiple orders of priority over tactical compliance and process applications (e.g., eProcurement, e-sourcing, etc.). Put another way, this is a world ruled by the next instantiation of solutions like Bloomberg, SAP Supplier InfoNet and the like -- not Ariba Buyer or ERP eProcurement. Supply risk insurance products and the underwriting of risk take on new dimensions here as well. Understand networked intelligence and risk as a currency and you'll thrive (or at least survive) in this context. If you justify your existence just on cost savings, look for a new job. Now.

Jason Busch

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